All Forum Posts by: Timothy Daniels

Hi Michael, 

Welcome to the community! 

Let me start with a caution...if you want to be an investor, don't think in terms of gross income!

As an owner of 12 vacation rental properties,  I see this a lot.  People look at gross income without considering a raft of expenses not included in a typical residential rental.  Here's a brief list: furnishings,  linens, kitchen supplies/toiletries, all utilities, cleaning, management (25-40%--should be calculated even if you do it), vacancy, income taxes at non-passive rates (self-employment tax included), cable/wifi, state sales tax and filing, business licenses and more, depending upon your location. When these are deducted from gross, and accounting for premiums on the purchase price, a duplex to four-plex is often a better net income producer.

I don't say this to discourage you.  Just be sure you run the numbers and touch base with reality.

I ask for background/credit check after everything else is kosher.  I state my process up front, ask some questions over the phone, email (then review) the application, then meet at the unit.  If they and you are on the same page at that point, run background check.

I'm in a small town. Not all processes work in all places.  And yes, as with any lawsuit, you don't need winning proof to file against someone and create huge expense and hassle for them.  Protect yourself all along the way.

The pre-screen idea is very good...you can make decisions about tenant quality without the tenant being able to accuse you of violating Anti-discrimination/Fair Housing rules. I don't believe you would, but if you meet face-to-face the charge can be levied against you and you must disprove it...

Decide by phone call first, then application, then personal meeting.

I use easylandlordforms.com, but there are a bunch of sites that offer vetted legal docs, state-specific--even background checks.  Well worth the money I spend.

Hi Al,

Is your VR region seasonal? 

We are extremely seasonal--little to no vacationers between November and April.   So an income stream I am employing is offering some units for monthly rental in the off-season.  In our area I am able to rent a furnished unit for about 20-25% more than a similar unfurnished residential rental.  There's a bit of risk with regard to damage, plus some wear and tear, but 2 years running now and still no problems (I'm ridiculously picky about these tenants). 

I'm interested to see the marketing differences between our locations.  It will be insightful for those with ski chalets as well.

Hey Al,

I read your article earlier with great interest and I couldn't agree with you more...especially the distinction between investors and property owners (my classifications).  Although my net return is close to 20%, I typically tell people who ask me that vacation rentals are not all that lucrative given the initial cost of ownership, assumed expenses (utilities, cable/wifi, etc.), cost of management, TAXES, and vacancy rate (I almost never have a guest in any unit for all of November!).

What I have found is that a large proportion of VR property owners do not have an investor's goals.  Instead, they are wanting to fund their vacation place and use it at their leisure or they have unused space and for a little bit of work they get free "date money" (my wife's favorite classification).

Whenever I contribute to a forum post on BP I try to bring reality to the table--have you considered all the expenses in your calculations.   After all, BP is about investors helping investors, right?

Tim

Hi @Tammi Sims

My wife and I have 12 vacation rentals on San Juan Island, and manage a few others besides.  We do our own management,  hire (and help with) cleaning, and greet our guests.  We put our high-end units in my wife's account and our budget rentals in mine.  

This latter choice is an interesting conflict in the Airbnb world as they always push for 5-star and Superhost status (my wife) but I intentionally shoot for 4 stars.  To keep the experience budget friendly, it must be affordable for both me and the guest.

We love the VR industry, but I don't think it is for everyone nor is it always as lucrative as people imagine.  We have done well because of location, supply and demand, and the purchase price of our units but not every VR offers those advantages. I have found that often VR is not an investment strategy. It is a lifestyle strategy.  When people ask me about buying a VR, I always ask them about their goals for ownership. I also help them run the numbers, including management fees because their time is valuable. They may choose to self-manage and pocket the money but at least they have an accurate assessment of the value of their investment.  If their goal is lifestyle--just to offset the expenses of ownership--it requires a different "bottom line" than may be required for the professional investor.

Just thinking out loud.  You two sound like you're doing great! I will be sure to check your places out when we are in need of a Seattle space.

@Mike Zawistowski

My wife and I have 14 vacation rental units on San Juan Island, WA in our portfolio.  I'd be happy to give my 2 cents worth on any specific questions you might have.  Connect with me/message me if you like.

Vacation rental income is not considered passive for tax purposes. You pay ordinary income tax/self employment tax on it.

Are you waterfront?